RBC and TD pay more than $24 million for foreign exchange compliance failings

TORONTO – The Ontario Securities Commission (OSC) today approved settlement agreements with Royal Bank of Canada (RBC) and The Toronto-Dominion Bank (TD) related to compliance failures in the banks’ foreign exchange (FX) trading businesses. These failures allowed RBC and TD FX traders to share confidential customer information in chatrooms with FX traders at competitor firms. 

From 2011 to 2013, OSC Staff identified hundreds of instances in which RBC and TD FX traders disclosed confidential transaction details, such as trade sizes, timing, price, or stop-loss levels. This information allowed traders to gain a potentially unfair advantage in the market. RBC and TD’s FX supervisors permitted the exchange of this confidential information, and neither institution imposed a chatroom ban until 2013. In addition, as a result of inadequate internal controls at RBC and TD, these bans were not effectively enforced until 2015.

OSC staff do not allege, and have no evidence of, manipulation of FX benchmark rates.

“These are serious failings by two of the biggest, most sophisticated and well-resourced financial institutions in Canada,” said Jeff Kehoe, Director of Enforcement. “RBC and TD had the ability and means to properly monitor use of technology with known compliance risks in their FX trading, yet for more than three years, they failed to adequately do so. As a result, traders were free to engage in self-serving behaviour that put the banks’ economic interests ahead of their customers, other market participants and the integrity of the capital markets.”

As part of its settlement with the OSC, RBC has agreed to a voluntary payment of $13.552 million to advance the Commission’s mandate of protecting investors, plus a further $800,000 towards the costs of staff’s investigation. TD has agreed to a voluntary payment of $9.3 million to the Commission, plus $800,000 for staff’s investigation. The voluntary payments take into account, among other things, RBC and TD’s level of cooperation with staff. To provide transparency to market participants, OSC staff have included detailed descriptions of how these payments were calculated in the settlement agreements.

In addition to making the above payments, both institutions have agreed to conduct audits of the compliance frameworks for their FX businesses.

Following these settlement agreements, the OSC will conduct a review of the largest derivatives dealers in Ontario’s compliance oversight for FX trading. OSC staff are asking derivative dealers in Ontario to assess whether they have sufficient controls to manage the risks faced by their FX trading businesses. OSC staff will review these assessments, and coordinate with other Canadian regulators as appropriate.

“We expect derivative dealers in Ontario to take immediate action to assess their FX oversight program and confirm their compliance with the Global FX Code of Conduct,” said Kevin Fine, Director of Derivatives at the OSC. “Any dealers that identify problems with their compliance systems should promptly self-report to the OSC.”

The OSC thanks the U.K. Financial Conduct Authority for their assistance with the investigation of this matter. Additionally, the OSC appreciates the assistance of the Australian Securities and Investments Commission, the Autorité des marchés financiers, the Investment Industry Regulatory Organization of Canada, the Office of the Superintendent of Financial Institutions, and the U.S. Commodity Futures Trading Commission.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in the capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at https://www.osc.ca.

 

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